We've been talking about national growth models or what we can learn about national growth models through the current account surplus or deficit. Now let's have a look at what the current accounts tell us about the global growth model. Remember that big closed market we were talking about. All current accounts in the world should add up to zero, shouldn't they? Because what one nation is exporting another is importing, the total of all of those current accounts needs to be zero. That means that if some countries are going to have a surplus others have to have a deficit. Obviously, I can't have a surplus if somebody else doesn't have a deficit. So if we look at the whole world, we see that there are some countries that are big savers for cultural reasons. They are aging so their consumption is weak. They have low domestic demand maybe because corporations want to invest abroad rather than at home. So these countries with those sorts of issues have current account surpluses and they need the deficit countries, otherwise they can't grow, because my surplus has to be offset by some deficit. These countries as we've said willingly lend to the deficit countries so that these deficit countries will fill in the consumption that they lack; buy their excess goods, fuel their growth. And so there's this global cycle going on of lending and borrowing. And the only problem with it is that if countries tend to be deficit countries chronically, like the ones we've looked at, year after year they have a deficit, then their debt is rising year after year. On the other hand, the countries that are chronic surplus countries, their exposure to debt, their exposure to foreign business cycles, their exposure to foreign currencies rises year after year. So we do get to a situation that can be kind of unstable globally. Now let me just show you where we the last available the last year that we had data for. Where we stand in terms of the size of current account deficit size of surpluses. We've got, I've put on this slide the 10 largest current account deficit countries on the left. And there they include the United States, the UK, Canada, Australia, Turkey. You can see Saudi Arabia you can see Brazil, France, Mexico, India and we add all of those up and it's 800 some billion dollars. And then we've got the 10 largest current account surplus countries on the right. That's Germany - I've also put the euro in but I didn't sum it's surplus because it's in Germany's - China, Japan, Switzerland, Netherlands, Singapore, Italy, Russia and Denmark. Now those numbers don't have to match, because we've got other current account deficits and other surpluses in the world. But you can see that these numbers on the left, these 800 and some billion dollars that the current account deficit countries contribute. This is surplus demand for the global economy. This is extra demand that some of these surplus countries can come and take so that they can grow. Remember that they can't grow only on their own demand. So these 800 and some billion dollars are there for the countries on the right to be able to grow. Remember as well that the countries on the right are not there because they're more competitive, they're more efficient, they're better. Their surpluses are permitted by offsetting deficits so we have to have both. And a current account surplus country requires excess global demand so that it can maintain its surplus. So this is just something I want you to see from this slide. Now, if we think about the global financial crisis, I want you to think about this cycle of debt that occurs when you are a current account deficit country. Please remember here, I'm talking about total debt. I'm not talking about government debt which we talked about in the very first course in this series. I'm talking about total debt. Your private and public sectors are borrowing to finance your current account deficit. If you have a look at this slide, this is the year 2005. Here I've put the current account deficit as a percent of GDP. And you can see on the left most of the countries that had trouble in the global financial crisis are represented there. In fact, all of them are represented there. So you can see Iceland where the crisis starts. It's got the largest current account deficit of all. Why did it have a financial crisis? Because that debt got so large, public and or private. You can see going through the list, you can see Greece which had a debt crisis, you can see Portugal, you can see Spain, you can see Ireland, you can see the United States, you can see the UK: all of the countries that were hit hard by the global financial crisis are current account deficit countries. Why were they hit hard? Because their debt grew year after year until it got to a dangerous level. Then the next slide here, you can see that I've put those current account deficits and surpluses in 2005 and then in 2015. And you can see some of the changes. Do you see over here on the left how Iceland, Ireland, Spain. They have turned their current account deficit into surpluses. They've increased saving because there was not enough demand at home for them to grow, they've turned the deficit into a surplus. You see these, these transformation in some countries one the left. In some countries on the right you also see falling current account surpluses. Also, as you look at the right and you look at the surplus countries both in the first and the second slide, you see that there are problems in the global financial crisis were not debt; they were falling oil prices. Flagging domestic demand, think of Japan. These kinds of issues, not the buildup of debt, and the link to the current account is direct here.
